Macro Analysis / Turkey

Turkish gold reserves rise as FX reserves fall

  • Turkey's central bank has accumulated 5.9mn oz of gold ytd (worth US$16bn), its stock is now behind only China & Russia
  • Motives could include building buffers, diversifying reserves, defying sanctions, stimulating growth or FX hedging
  • FX reserves decline to US$42.4bn as gold reserves rise to US$41.1bn; could signal more TRY weakness ahead
Turkish gold reserves rise as FX reserves fall

There are many possible reasons for gold accumulation, each with different implications:

  • To accumulate reserves without directly pressuring the TRY/US$ exchange rate.

  • To diversify reserves and move away from the US$ amid rising tensions with the West (with conflicts in Azerbaijan, East Med, Iraq, Libya and Syria – see here).

  • To route gold purchases from Venezuela to Iran in contravention of sanctions, with US officials expressing concerns in early 2019.

  • To stimulate growth by purchasing gold from residents without sterilising the cash injection (with the government announcing plans to bring more of the alleged 5,000-ton stock of “under the mattress” gold into the banking system).

  • Resulting from higher domestic production, which is expected to rise 16% yoy this year (with the CBRT holding the right of first refusal to purchase at market prices, currently near the all-time high).

  • Greater required reserves at the CBRT as residents buy gold and deposit at banks to hedge against TRY weakness (precious metal deposits are up US$15bn ytd but required reserves have only increased by US$1bn, while imports of precious metals rose 221% yoy to cUS$3.5bn in September, indicating a large movement from TRY into gold but little impact on CBRT gold reserves).

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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...

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